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ArQule falls as a side effect is seen in a Japanese trial of tivantinib.

Shares of the biotech dropped 18% yesterday after disclosing that its Japanese partner Kyowa Hakko Kirin had stopped enrolment in a trial, dubbed ATTENTION, a bit-of-a-stretch acronym for "Asian Trial of Tivantinib plus Erlotinib for NSCLC without EGFR Mutation trial." And shares are down a little more today.

Kyowa is testing ArQule's tivantinib in combination with Roche and Astellas' Tarceva compared to Tarceva alone in lung cancer patients. An independent safety review committee recommended halting enrollment after reports of patients that were suspected of having interstitial lung disease, a scarring of the lungs that can impair a patient's ability to breathe.

There were more cases of ILD in one of the treatment groups, and the safety committee requested additional information regarding the cases of ILD. The worry, of course, is that tivantinib is causing the ILD, but it doesn't look like that's known for sure at this point. Patients already in the trial will continue to be dosed with the drug, which I take as a good sign that this isn't an extremely serious issue.

Even if it turns out tivantinib is causing ILD in patients of Asian descent, it doesn't necessarily mean that we'll see the same effect in patients in the MARQUEE trial. The different genetic makeup of Asians can result in different responses to drugs, which is the reason that Japan and other countries in Asia require separate clinical trials in patients of Asian descent.

In fact, ILD seems to be a side effect of Japanese patients taking AstraZeneca's (NYSE: AZN) lung cancer drug Iressa and to a lesser extent chemotherapy. There seems to be some other factors that might contribute to the susceptibility including having poor performance status, which might allow Kyowa to segment the population, using the drug on a subset of patients to increase the benefit risk ratio. Another option might be to see if a lower dose is still effective without the side effects; Asians are often started on antidepressants such as Pfizer's (NYSE: PFE) Zoloft, GlaxoSmithKline's (NYSE: GSK) Paxil, and Eli Lilly's (NYSE: LLY) Prozac at doses as low as half what a Caucasian patient would be prescribed.

For ArQule, the MARQUEE trial and an approval in the U.S. and Europe is much more important than gaining approval in Japan and other Asian countries. Investors won't have to wait too long. ArQule expects to have interim data from that trial by the end of the year and final data in mid-2013. Investors looking to buy ahead of the binary event, should consider the price cut as a potential buying opportunity as I don't see the news affecting the outcome of that trial.